DraftKings CEO acknowledged some UIGEA noncompliance in May conference call
— -- Jason Robins, the CEO of embattled daily fantasy operator DraftKings, acknowledged in May that some of his company's contests do not comply with a federal law, according to the minutes of a conference call obtained and verified by ESPN.
Six months later, however, with New York attorney general Eric Schneiderman trying to shut down both DraftKings and top competitor FanDuel from operating in the Empire State, attorneys for DraftKings have stated in multiple legal filings that the company "operates with careful attention" to the Unlawful Internet Gambling Enforcement Act of 2006.
On May 19, in an hourlong call with members of the Fantasy Sports Trade Association compliance committee, Robins purportedly said that offering daily fantasy sports on events like a NASCAR race or a golf tournament does not comply with the letter of the UIGEA, according to the minutes, which were provided by FSTA.
During daily fantasy's meteoric growth over the past five years, operators have pointed consistently to UIGEA in regard to their legality. But around the same time as the compliance call, DraftKings stripped all references to UIGEA from the "Why It's Legal" page on its website, as first reported by industry news site LegalSportsReport.com, and seemed to be distancing itself from the federal law.
"Jason acknowledged that Golf and NASCAR do not comply with the letter of the UIGEA, but argued that UIGEA was written when daily fantasy didn't exist," the minutes said. "In his view, if it were written today with daily fantasy sports in the mix, it wouldn't exclude specific sports like golf or NASCAR. The presence of a large field, in his view, is similar to having multiple events. He also pointed out that UIGEA is an enforcement statute -- not the 'governing law.' He indicated that state law supersedes UIGEA. From his perspective, the only relevant question is whether you are in violation of state law."
The minutes went on to read that Robins believed "operators should not need to operate consistently with UIGEA if they can operate lawfully under state law. Jason said that DraftKings has done extensive testing and can demonstrate that fantasy golf and NASCAR are games of skill and are therefore legal under state law."
DraftKings declined to make Robins available to clarify his comments from the call and disputed how his remarks were represented in the minutes.
"The purported FSTA board minutes are not a verbatim transcript, but rather the interpretation of a lengthy meeting by one non-lawyer reflecting what another non-lawyer said about a complex law," a company spokesperson said in a statement to ESPN. "[Jason] firmly believes that all of DraftKings' games are 'games of skill' that comply with all applicable State and Federal law and therefore do not violate UIGEA."
The Wall Street Journal reported in October that a Florida grand jury had subpoenaed the FSTA to produce copies of its board-meeting minutes. FSTA president Paul Charchian declined comment. Nigel Eccles, CEO of industry giant FanDuel, is listed as the chairman of the FSTA compliance committee. Eccles could not be reached for comment.
The minutes say, "since DraftKings' golf and NASCAR games are not UIGEA compliant, DraftKings is currently in breach of the FSTA Paid Operator Charter.
"Jason indicated that DraftKings would be proposing a change to the paid operator charter. It was also discussed that if the change doesn't pass, then there will have to be a decision of what to do next since DraftKings will be out of compliance with it. A further discussion was had over whether offering these games endangers existing fantasy operations and brings unwanted scrutiny to the industry."
According to the minutes, the meeting concluded "with the understanding that Jason would be proposing a change to the Charter that would remove the requirement that operators offer games that are consistent with the UIGEA carveout. Further discussion of what would happen if the charter change was not adopted was tabled."
UIGEA aims to prohibit payment processors from accepting illegal online gambling transactions. The statute contains language that excludes fantasy sports that meet certain criteria from being considered a "bet or wager," therefore allowing payment transactions to be processed. Among the criteria that must be met by fantasy sports events to comply with UIGEA, the winning outcome of a fantasy contest may not be "based solely on any single performance of an individual athlete in any single real-world or single event."
While the more popular daily fantasy tournaments such as football, basketball and baseball involve multiple games, NASCAR and golf daily fantasy tournaments are based on a single event. The majority of fantasy sites, including FanDuel, do not offer tournaments on NASCAR and golf in an effort to comply with UIGEA.
"The reason why it is most logical to construe these DraftKings contests as based on singular events is because a single golf tournament or a single NASCAR race is advertised to the public as a single event. There is only one winner at the end, and there are not any sub-matchups within the competition," said Marc Edelman, an associate professor of law at the Zicklin School of Business of Baruch College. "Any other interpretation of the event would be illogical.
"One could certainly attempt to argue that every act in a sporting competition is in itself a separate event," added Edelman, who disclosed that he is advising a client in a legal matter against a daily fantasy operator. "But if that were the case, then it would be legal to operate a one-inning daily fantasy sports contest where each participant selects one batter from each team. That would be an absurdity in light of the underlying purpose of the statute."
Both DraftKings and FanDuel are headed to New York Supreme Court next week in an attempt to fight off Schneiderman's cease-and-desist demand and request for a preliminary injunction. Schneiderman has said daily fantasy sports violate the state's gambling laws.
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